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Category: Arbitrability

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Arbitrability

Vidya Drolia v. Durga Trading [Supreme Court, 14 December 2020]

VIDYA DROLIA V. DURGA TRADING

Vidya Drolia v. Durga Trading [Supreme Court, 14 December 2020]

ISSUE:

  • Whether landlord-tenant issues covered by the Transfer of Property Act 1882, are arbitrable under Indian law, and how does the Supreme Court’s four-part test influence this determination?
  • Whether claims of fraud in a dispute constitute it non-arbitrable, and under what conditions do such allegations influence a disagreement’s arbitrability?

RULE:

  • In India, a four-part test is used to evaluate subject matter arbitrability. When the cause of action and/or subject of the dispute (1) relates to actions in rem that do not relate to inferior rights in personam arising from rights in rem, (2) has an erga omnes effect on third-party rights, necessitating centralised adjudication where mutual adjudication would be inappropriate, (3) involves unalienable sovereign and public interest functions of the State, or (4) is expressly or implicitly prohibited, the dispute is not considered arbitrable.

FACTS:

  • The case dealt with landlord-tenant issues governed by the 1882 Transfer of Property Act (TPA).
  • An appeal against a Division Bench’s decision in Himangni Enterprises v. Kamaljeet Singh Ahluwalia (2017), which concluded that TPA-based landlord-tenant conflicts are not arbitrable due to public policy.
  • Previously decided Supreme Court cases such as Natraj Studios, Booz Allen, and Himangni Enterprises influenced the arbitrability of tenancy issues.
  • The case also addressed the arbitrability of fraud, consistent with the Avitel decision.

HELD:

  • In accordance with Sections 8 and 11 of the Arbitration and Conciliation Act, 1996, the judgement addressed questions regarding the arbitrability of the subject matter and the extent of judicial intervention.
  • A four-part test that defined subject matter arbitrability made it clear which conflicts may be resolved by arbitration:
  • It is not arbitrable if a dispute involves in-rem activities and excludes rights in personam derived from in-rem rights.
  • Non-arbitrable disputes have an erga omnes effect, call for centralised adjudication, involve the rights of third parties, and are not appropriate for mutual arbitration.
  • Arbitration is not permitted in cases involving the State’s unassailable sovereign and public interest functions.
  • Conflicts that are explicitly or tacitly exempt from arbitration under certain statutes are not arbitrable.
  • The Court emphasised a prima facie test at the referral stage, highlighting the parameters of judicial interference under Sections 8 and 11. Courts must send cases to arbitration or select an arbitrator unless a side can establish prima facie that there is no valid arbitration agreement. The court’s investigation is limited to figuring out particular elements of the arbitration agreement.
  • The judgment overturned earlier rulings that fraud allegations and tenancy disputes may not be arbitrated, giving these sectors more clarity and leeway.
  • The Court emphasized the importance of following the prima facie test when establishing arbitrability and expressed increased confidence in arbitration as a conflict settlement method.
  • Concerns about the different appealability of orders issued under Sections 8 and 11 raised the possibility that legislative changes would be required to bring them into compliance.
Categories
Arbitrability

The Indian Performing Right Society Ltd. v. Entertainment Network (India) Ltd. (MANU/MH/1597/2016)

THE INDIAN PERFORMING RIGHT SOCIETY LTD. V. ENTERTAINMENT NETWORK (INDIA) LTD.

The Indian Performing Right Society Ltd. v. Entertainment Network (India) Ltd. (MANU/MH/1597/2016)

ISSUE:

  • Whether disputes on the issue of refund of royalty is an arbitrable matter?

RULE:

  • The rights granted to an IPR owner are considered as “rights in rem” because they protect the owner’s property from everyone and not just from one specific person.
  • Any issues involving rights in rem are to be settled by Courts.
  • Since determining the validity of intellectual property is an issue that can only be handled by the Copyright Board and is not subject to arbitration, the issue of refunding royalties cannot be settled by arbitration.

FACTS:

  • In 2001, the Eastern India Motion Pictures Association (the “defendant”) and the Indian Performing Arts Society (the “plaintiff”) entered into an agreement that included an arbitration clause and granted the defendant a licence to broadcast the artists’ works on its radio channel and the licence agreement said that the royalty was to be paid in advance every six months and that any inconsistencies had to be reported within 60 days.
  • The dispute arose for payment of royalty, and also the defendant invoked the arbitration agreement.
  • The arbiter held that the transmission of a sound chronicle without consent of the lyricist, along with the composer, doesn’t comprise an infringement of copyright.
  • Bothered by this, parties raised their objections and filed separate arbitration petitions before the tribunal of Delhi for putting aside the arbitral decision under Section 34 of the Arbitration and Conciliation Act, 1996[44], and these arbitration petitions were heard jointly by the Court.

HELD:

  • ​​​​​​​The Hon’ble High Court held that the learned arbitrator had rendered a finding on the legal character and validity of the ownership of the respondent in the copyright, and thus, the said award would be in the nature of an adjudication on an action in rem.
  • The Court rejected the arbitral award on the grounds of the dispute being in nature of a non-arbitral dispute.
  • The Court pointed out that the question of a refund of royalties in this case could only be resolved once the Copyright Board had decided on the issue of the intellectual property’s legality.
Categories
Arbitrability

Swiss Timing Ltd. vs. Organizing Committee, Commonwealth Games 2010 Delhi, (Arbitration Petition No. 34 of 2013)

SWISS TIMING LTD. V. ORGANIZING COMMITTEE, COMMONWEALTH GAMES 2010 DELHI

Swiss Timing Ltd. v. Organizing Committee, Commonwealth Games 2010 Delhi, (Arbitration Petition No. 34 of 2013)

ISSUE:

  • Whether a dispute involving allegations of fraudulent, corrupt, collusive or coercive practice be settled by arbitration?

RULE:

  • Allegations of fraud and other malpractices are arbitrable, but the arbitral tribunal cannot deal with a case of serious fraud and its jurisdiction is merely limited to determining the issue of simpliciter fraud.

FACTS:

  • The Petitioner, a Swiss company, and the Respondent entered into an agreement in 2010 to provide the time, score, outcome, and support services necessary to hold the Commonwealth Games in India.
  • The Petitioner initiated arbitration pursuant to clause 38 of the Contract after alleging that the Respondent had failed to make the payments required by the Contract.
  • The Respondent failed to nominate its arbitrator on the grounds that Swiss Timing Ltd. had broken a warranty that it would not engage in corrupt, fraudulent, collusive, or coercive practices, which it claimed was evidenced by the criminal cases pending against the officials of Swiss Timing Ltd.
  • The Petitioner approached the Supreme Court under Section 113 of the Arbitration and Conciliation Act, 1996 Act, for the constitution of the arbitral tribunal.

HELD:

  • The Hon’ble Apex Court held that the allegations of fraud can be determined by arbitration, where an arbitration agreement exists between the parties.
  • It was also observed by the Hon’ble Court that initiation of a criminal case cannot be a reason for denying arbitration.
  • The Court further held that the contention of substantive Contract being void/voidable is not a bar to arbitration, and the court must follow the policy of least interference.
  • Hence, the court held that the possibility of conflicting decisions is not a bar against simultaneously proceeding with arbitration and criminal proceedings.
Categories
Arbitrability

Shri Vimal Kishor Shah v. Jayesh Dinesh Shah, CIVIL APPEAL NO.8164 OF 2016

SHRI VIMAL KISHOR SHAH V. JAYESH DINESH SHAH

Shri Vimal Kishor Shah v. Jayesh Dinesh Shah, CIVIL APPEAL NO.8164 OF 2016

ISSUE:

  • Whether disputes arising out of trust deeds, governed under the Trust Act,1882 are, arbitrable disputes?

RULE:

  • Although there is no express prohibition against the Arbitration Act, there is an implied prohibition against the Arbitration Act’s application to the resolution of trust-related disputes through private arbitration because the remedies provided by the Trusts Act are adequate and sufficient.

FACTS:

  • In 1983, Vimal Kishor Shah and Jayesh Dinesh Shah were two of the six minors included in a trust created by a family trust deed signed by Shri Dwarkadas Laxmichand Modi. According to Clause 20 of the Trust Deed, any disputes would be settled in accordance with the Indian Arbitration Act, and the arbitrators’ ruling would be legally binding on all parties involved.
  • However, issues arose between the beneficiaries soon after the trust was established, and one of the trustees resigned from his position.
  • Finally, a request was made for the disagreements to be amicably resolved by being sent to the arbitrator in accordance with Clause 20 of the Trust Deed.
  • One group of beneficiaries filed a petition in the High Court pursuant to Section 11 of the Arbitration and Conciliation Act after the parties were unable to resolve their disagreements and designate an arbitrator.
  • The designated Judge granted the application and ruled that the parties, who were minors at the time of the Trust Deed’s execution but have become major, should be considered parties for purposes of Section 2(h) and that they have the right to initiate proceedings for the appointment of an arbitrator under Section 11 of the Act.
  • One group of beneficiaries (the appellants) submitted the petition by special leave to the Supreme Court in opposition to this order of the Single Judge.

HELD:

  • The Hon’ble Apex Court allowed the appeal and held that the application for arbitration under Section 11 of the Act was not maintainable and, dismissed the said application and set aside the impugned order of the High Court.
  • According to the Supreme Court, there was no legitimate arbitration agreement.
  • According to the court’s analysis of the Sections, an agreement must meet the following criteria in order to be deemed valid: (1) there has to be an agreement, (2) it has to be in writing, (3) parties must sign such agreement or in other words, the agreement must bear the signatures of the parties concerned and (4) such agreement must contain an arbitration clause.
  • The requirements of Section 2(b) and 2(h), read with Section 7, were not met because there was no agreement and the arbitration clause was inserted unilaterally by the “settlor.” Hence, it is held to not be a valid arbitration agreement.
Categories
Arbitrability

Nori Holdings Limited et al v. PJSC Bank Okritie Financial Corporation, [2018] EWHC 1343 (Comm)

NORI HOLDINGS LIMITED ET AL V PJSC BANK OKRITIE FINANCIAL CORPORATION

Nori Holdings Limited et al v PJSC Bank Okritie Financial Corporation, [2018] EWHC 1343 (Comm)

ISSUE:

  • Whether the court of one EU Member State can grant an anti-suit injunction where one of the parties has started legal proceedings in another EU Member State in disregard of an existing arbitration agreement between the parties?

RULE:

  • The Brussels Regulation was adopted by the European Union in 2000 in order to minimize the impact of differences between national rules governing jurisdiction.
  • An injunction to stop legal action launched in violation of an arbitration agreement in another Member State court cannot be granted by an English court.

FACTS:

  • Five Share Pledges over shares owned by the three Claimants were used as security for the more than $500m in short-term loans made by the defendant, a Russian company. These Share Pledges had an arbitration clause with London as the seat.
  • The short-term loans backed by Share Pledges were then replaced with long-term unsecured bonds as a result of a sequence of transactions that occurred in August 2017.
  • The arbitration clause of the Share Pledges was purportedly referenced in five Pledge Terminations that terminated the Share Pledges and were regulated by Cyprus law.
  • The Claimants transferred the shares that were the subject of the earlier Share Pledges to other firms after the August Transactions, and those companies then pledged the shares to a different bank.
  • After the August Transactions, the Claimants transferred the shares covered by the earlier Share Pledges to other businesses, who subsequently pledged them to a different bank as collateral for additional loans.
  • The borrowers/claimants sought to enforce the arbitration clause in the agreements between the parties by applying to the English court for an anti-suit injunction aiming to prevent the Defendant from moving on with its claim.

HELD:

  • The English court reaffirmed the validity of the West Tankers Inc. principles by refusing to grant an anti-suit injunction against the Russian bank.
  • In so doing, the English court clarified that the Recast Regulation adopts the same position as its predecessor, which rejects the grant of anti-suit injunctions to enforce arbitration clauses between parties in the European Union.
  • The Court held that English court cannot grant ant-suit injunction to restrain proceedings in another Member State court brought in breach of an arbitration agreement.
Categories
Arbitrability

Booz Allen & Hamilton v. SBI Home Finance (2011) 5 SCC 532

BOOZ ALLEN & HAMILTON v. SBI HOME FINANCE

Booz Allen & Hamilton v. SBI Home Finance (2011) 5 SCC 532

ISSUE:

  • Whether the absence of an express provision in the Arbitration and Conciliation Act, of 1996, has created uncertainty in identifying which conflicts can be brought to arbitration and which must be resolved in court?
  • Whether the Supreme Court’s four-part test in the Vidya Drolia case gives a clear framework for establishing arbitrability in India, and how it differs from the earlier Booz-Allen Test?

RULE:

  • Disputes involving a “right in rem” (a person’s right against the entire world) are often seen as non-arbitrable, but disputes involving a “right in personam” (rights against specific individuals, such as in a contract) are regarded as arbitrable.

FACTS:

  • The nature of the disagreement between Booz Allen & Hamilton Inc. and SBI Home Finance Ltd. was whether the subject matter of the dispute was arbitrable, i.e., whether it could be addressed through arbitration or required court adjudication.
  • Booz Allen and SBI Home Finance previously agreed to arbitrate any issues between them.
  • A dispute emerged between the two parties, prompting Booz Allen to commence arbitration under their agreement clause. Booz Allen contended that the disagreement could be resolved through arbitration.
  • The Supreme Court of India introduced the “Booz-Allen Test” to determine arbitrability in its decision in this case. According to this test, the arbitrability of a dispute is determined by the nature of the rights concerned. The Court ruled that conflicts containing a right in rem were not arbitrable.
  • Due to this decision, the Supreme Court classified certain types of disputes as non-arbitrable. These included criminal offense conflicts, marriage problems, guardianship issues, insolvency and winding up disputes, testamentary disputes, and eviction or tenancy disputes.

HELD:

  • The Supreme Court dismissing the appeal recognized three conditions that need to be satisfied for a subject matter to come under the jurisdiction of arbitration. They were:
  • (i) The disputes must be capable of adjudication and settlement by arbitration;
  • (ii) The disputes must be covered by the arbitration agreement; and
  • (iii) The parties must have referred the disputes to arbitration.
  • The arbitrability of a dispute is determined by the nature of the rights at stake.
  • Disputes involving a “right in rem” (a person’s right against the entire universe) are often regarded as non-arbitrable.
  • Generally, disputes involving a “right in personam” (rights against specific individuals, such as in a contract) are arbitrable.
Categories
Arbitrability

Fulham Football Club (1987) Ltd v. Richards [2012] 1 All E.R. (Comm) 1148

FULHAM FOOTBALL CLUB (1987) LTD V. RICHARDS

Fulham Football Club (1987) Ltd v. Richards [2012] 1 All E.R. (Comm) 1148

ISSUE:

  • Whether the arbitration clause contained in the FAPL and FA Rules should be construed so as to exclude the claims for unfair prejudice which fall within Section 994 of the Companies Act, 2006?

RULE:

  • The disputed issues are covered by the arbitration agreement, provided that the relief requested by the party is not one that would bind third parties or one that an arbitrator could not give owing to public policy concerns, which should render the arbitration agreement void.

FACTS:

  • A disagreement emerged when Tottenham Hotspur Football Club (THFC) and Fulham Football Club (FFC) were trying to sign Peter Crouch from Portsmouth Football Club.
  • According to FFC, Sir David Richards, the Chairman of the Football Association Premier League (FAPL), interfered with the transfer discussions and made it easier for the player to transfer to THFC, violating the FA Rules and the FAPL’s Articles of Association.
  • Section 994 of the Companies Act of 2006 gives members of a company the right to petition the court on the grounds that the company’s affairs are being conducted in a way that is unfairly prejudicial to the interests of all or some of its members. This is what FFC sought to do when it filed an unfair prejudice petition with the courts.
  • FFC and FAPL were parties to the FAPL Rules, which contained arbitration clauses; the disagreement should be resolved through the arbitration process outlined in the contract.
  • An injunction was sought by FFC to restrain Sir David Richards from participating in future transfer negotiations, together with an order to cease acting as Chairman or director of the FAPL.
  • The High Court, at first instance, granted the stay of proceedings. FFC appealed

HELD:

  • The Court of Appeal dismissed the appeal.
  • The court further stated that the problems at issue are covered by the arbitration agreement, provided that the relief requested by the party is not one that would bind third parties or one that an arbitrator could not give owing to public policy considerations, which should render the agreement void.
  • In this instance, the Court of Appeal determined that the petition’s disputes fell within the scope of the arbitration agreement and that an arbitrator may also provide FFC the relief it was seeking.
  • Additionally, the Court of Appeal mentioned in passing that the arbitrator might determine whether the underlying claim of unfair prejudice was made out and then authorise the complainant to seek relief from the courts in circumstances where a third party may be bound or where the remedy sought cannot be provided by an arbitrator.